NCPA - National Center for Policy Analysis

Rising Living Standards

July 15, 2003

As real wages and incomes rise, "nonmarket" goods like leisure, health, longevity, safety and environment quality become more valuable, say authors Dora L. Costa and Matthew E. Kahn.

For example, the average value that workers place on their lives can be found by calculating the pay premium workers require for performing particularly risky work.

Likewise, the value people place on good weather can be calculated by determining the average premium people are willing to pay, in the form of higher housing prices, for living in areas perceived to have a more desirable climate.

Thus, economists have found:

  • Based on declining fatality rates and increasing compensation for job risks, the value of life rose from about $2,884,000 in 1960 to $12,053,000 in 2000 (measured in 2002 dollars).
  • Over the 20th century as a whole, the value of life rose more than 28-fold.
  • The annual extra rent to "purchase" San Francisco's climate over Chicago's rose from $1,288 in 1970 to $7,547 in 1990.

These conclusions extend to other areas as well; for example, the higher value of life implies that the cost of crime has risen in recent decades. Similarly, the higher value we now place on climate may have increased demands for cleaner air, the authors explain.

Source: Dora L. Costa and Matthew E. Kahn, "The Rising Price of Nonmarket Goods," American Economic Review, May 2003.


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